EFTs can involve unexpected risks

When Alexander Nachaj needed to pay a deposit to buy a house, he didn’t give it much thought – he just went to his bank branch to send the money to the notary.

Posted at 12:55 p.m

Ian Bickis
The Canadian Press

Nachaj says he asked the teller at his TD Bank branch to double-check the numbers because he had to sign a form releasing him from any responsibility for the $18,000 bail. The cashier then carried out the electronic transfer.

And then the money is gone.

Thus began the Saint-Hyacinthe man’s journey into Canada’s electronic funds transfer system. In the vast majority of cases, the latter transfers the money securely and accurately, but as Mr. Nachaj noted, it’s far from foolproof.

It’s difficult to explain what went wrong in Mr. Nachaj’s case, as TD Bank has declined to discuss details of the case, but he says it took several weeks before he received a response as to the destination of the money.

“It’s amazing that in our time a transfer can remain in the fog for so long with no one taking responsibility or even knowing what happened,” he said.

Meanwhile, Mr. Nachaj was at risk of losing his new home in a hot real estate market and he had to put together another down payment with the help of his family and then send that money, also via wire transfer.

“It was like walking a tightrope or something, it was the most horrible thing I’ve ever endured because I wondered if it would happen again. »

The second payment went normally. That was good news because part of the concept of wire transfers is that they are generally designed to be irreversible, allowing the recipient to use the money with confidence and instantly.

“As soon as there are errors, we have really big problems,” explains Werner Antweiler, international finance expert at the Sauder School of Business at the University of British Columbia.

“Bank transfers are problematic because once in the system they cannot be recalled and that is part of their function. »

A source of complaints

It’s unclear how often bank transfers go wrong, but they’re among the top five sources of complaints about banking products filed with the Ombudsman for Banking and Investments, with around 30 cases in the past year. Wire transfers are among the top 10 sources of complaints by rival organization ADR Chambers Bureau of Banking Services.

Even if the numbers themselves are quite small, the sums involved are often significant. Most of the complaints do not reach the external arbitrators either, not even Mr. Nachaj’s. In his case, the bank’s internal investigation led to the return of his original transfer after a few months.

TD spokeswoman Caroline Phémius said in an email that the bank is working with its customers to try to recover the money if a transfer is lost.

“When an irregularity occurs with a bank transfer, we take the situation very seriously as we value the trust of our customers. »

The risks associated with a bank transfer and the impossibility of checking in advance that it is going to the right place are enough for many notaries to avoid it if possible.

“I don’t encourage our members to send money by wire simply because they hold us accountable if it goes wrong,” said Daniel Boisvert, president of the Association of Notaries of British Columbia.

Mr. Boisvert thinks a more verifiable system would be great, but in the meantime his employees still visit the bank up to three or four times a day to deposit physical bank checks. And while he believes big deals like buying a house are best done in person, there are workarounds like coordinating with an out-of-town attorney who can accept a bill of exchange.

The other big reason Mr. Boisvert avoids EFTs is simply cheating. The Canadian Center for Cybersecurity has warned of a rise in crime in recent years, with malicious people intercepting emails and inserting their own account details, which the unsuspecting customer then transfers the money to.

“It’s just terrifying for me and I’m sure it’s just terrifying for other notaries,” argued Mr Boisvert.

Possible solutions

Solutions are emerging to at least reduce the risk of errors and fraud. The UK introduced a system called Confirmation of Payee in 2020, where the sender checks that the name and account number are correct before confirming the payment. And SWIFT, which operates the system that underlies many international money transfers, began offering payment pre-validation earlier this year, which checks the validity of the recipient’s account before the money is sent.

Canada could also improve the reliability of electronic transfer payments by joining the international bank account number system used by more than 80 countries, as advocated by Professor Antweiler. The system offers more standardization to reduce errors and has check digits that run an algorithm to detect common errors, he explained.

Such a change would require approval from all banks, and bugs still crop up in the system, noted Payments Canada, which operates Canada’s remittance system on behalf of banks and credit unions.

Canadians sending an EFT should be vigilant and verify account, branch, and institution numbers required for a transfer. Numbers can be verified on a canceled check, while the recipient can also call their financial institution to double-check, which the sender could also do with the recipient.

But even the most advanced systems will have flaws. Citigroup learned this the hard way in 2020 when, instead of making a small interest payment on Revlon’s debt, it passed on the entire $900 million in debt. She’s still struggling to get much of it back.

As for Mr. Nachaj, he says he plans to stick with good old paper checks and bank drafts the next time he needs to move money.

“I only wire when I have to, just because I feel like I don’t have a lot of confidence in that part of the system at the moment. »

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